The aim of this project is to evaluate the effects of financial crises on medium–term economic growth.
The aim of this project is to evaluate the effects of financial crises on medium–term economic growth. The relationship between financial crises and swings of economic growth have been central to Minsky’s financial long swing hypothesis to explain 20-year fluctuations in economic growth in the USA since the late 19th Century; for Minsky the long swings of economic growth are part of an endogenous path of financial fragility. Reinhart & Rogoff and Reinhart & Reinhart focus on evidence from a panel historical data set for a large number of countries. This project builds on this earlier work by developing historical data sets that allow us to address the relationship between financial crises and economic growth. The project has developed new data for systemic banking crises since c.1870. This work has proved to be important to our understanding of the relationship between financial crises and their effect on real variables such as GDP and industrial production.
The Effects of Systemic Banking Crises in the Inter-War Period
The Effects of Systemic Banking Crises in the Inter-War Period, Bruno T. da Rocha and Solomos Solomou, Journal of International Money and Finance, Vol. 54, pp. 35-49 (2015)
This paper examines the time-profile of the impact of systemic banking crises on GDP and industrial production using a panel of 24 countries over the inter-war period and compares this to the post-war experience of these countries. We show that banking crises have effects that induce medium-term adjustments on economies. Focussing on an eight-year horizon, it is clear that the negative effects of systemic banking crises last over the entirety of this time-horizon. The effect has been identified for GDP and industrial production. The adverse effect on the industrial sector stands out as being substantially larger in magnitude relative to the macroeconomic effect. Comparing the results across long-run historical periods for the same selection of countries and variables identifies some differences that stand out: the short term macroeconomic impact effects are much larger in the post-war period, suggesting that the propagation channels of shocks operate at a faster pace in the more recent period. Moreover, the time-profile of effects differs, suggesting that modern policies may be modulating the temporal shape of the response to banking crises shocks. However, the broad magnitude of the adverse effect of banking crises remains comparable across these time periods.
Seminar presentations at Oxford, Cambridge and Rutgers.
